India's manufacturing sector experienced a notable decline in business sentiment during the April-June quarter of 2026-27, primarily attributed to geopolitical tensions in West Asia. According to the FICCI Quarterly Survey on Manufacturing, only 77% of respondents reported production levels that were either higher or unchanged in Q1, a significant drop from 93% in the January-March quarter. Similarly, demand moderated with 77% of manufacturers reporting higher or unchanged order books, down from 89% in the previous survey. The survey covered manufacturers across eight sectors with a combined annual turnover of more than ₹4 lakh crore, including automotive, chemicals, electronics, and textiles. As per FICCI, the impact of the West Asia crisis is clearly visible, with geopolitical tensions disrupting trade flows, raising freight costs and worsening raw material availability across sectors. Despite this moderation, respondents remained broadly optimistic about the domestic manufacturing outlook, with the investment outlook for the next six months remaining steady. The 70th edition of FICCI's Quarterly Survey on Manufacturing showed that production expectations weakened compared with the previous quarter, though strong domestic fundamentals helped cushion the impact of geopolitical uncertainties.
Manufacturing costs intensified during the quarter, with nearly 79% of respondents reporting an increase in production costs as a percentage of sales, compared with 70% in the previous survey. Companies attributed this to higher raw material and energy costs, rupee depreciation, elevated freight charges and utility expenses. Despite these challenges, average capacity utilisation remained broadly unchanged at around 72%, similar to the previous quarter, indicating manufacturers are still operating at reasonably healthy utilisation levels but are becoming cautious on expansion. According to FICCI, key constraints cited by firms included tariffs, trade restrictions, demand uncertainty, labour shortages and rising input costs. However, firms cited current geopolitical tensions and operational issues as key concerns over the next six months. The average interest rate paid by manufacturers remained broadly unchanged at 8.9%, while more than 89% of respondents said they had adequate access to bank credit for working capital and long-term funding. The survey noted that challenges faced by respondents in expanding capacities include the current geopolitical situation (tariffs, trade restrictions, demand uncertainty) and operational issues (labour availability, raw material shortages, increasing logistics costs, regulatory challenges).
While production and demand weakened, exports emerged as a relatively stronger area with around 74% of manufacturers reporting exports that were higher or unchanged compared with the corresponding quarter a year earlier, up from 61% in the previous survey. However, hiring intentions also weakened with only 35% of respondents saying they planned to recruit additional workers over the next three months, down from 41% in the previous quarter. According to FICCI, around 63% of manufacturers said they were not facing labour shortages, while the remaining 37% flagged the continued shortage of skilled workers and called for greater efforts by both industry and the government to bridge the skills gap. The mixed picture in exports suggests export diversification efforts may be cushioning part of the external shock from the West Asia crisis. The improvement in export performance is attributed to ongoing export diversification efforts by both the government and industry, helping cushion the impact of geopolitical uncertainties on the sector. Inventory levels remained largely stable, with 85% of respondents reporting higher or unchanged inventories, compared with 86% in the previous quarter.
Across sectors, metal and metal products reported the highest average capacity utilisation at 80%, followed by chemicals, fertilisers and pharmaceuticals at 76% and machine tools at 75%. Automotive and auto components recorded the lowest utilisation at 65%. The survey expects automotive and auto components, machine tools, and metal and metal products to post moderate-to-strong growth during the quarter, while growth in capital goods, electronics and electricals, and textiles is expected to remain moderate. In contrast, chemicals, fertilisers and pharmaceuticals and the miscellaneous segment are likely to witness moderate-to-low growth. Investment intentions varied significantly across sectors, with nearly 80% of respondents in metal and metal products saying they planned to expand capacity over the next six months, while more than two-thirds of electronics and electricals firms also indicated expansion plans. The chemicals, fertilisers and petrochemicals appeared among the most affected sectors, with firms citing global geopolitical volatility, unstable raw material supply and high energy costs as key challenges. The survey pointed to an improvement in export performance despite geopolitical uncertainties, with around 74% of respondents reporting higher or unchanged exports compared with the same period a year ago, up from 61% in the previous quarter.
Financial access remained largely stable during the quarter, with manufacturers reporting paying an average interest rate of 8.9%, broadly unchanged from the previous quarter. According to FICCI, nearly 89% said banks were providing adequate funds for working capital and long-term borrowing. The survey noted that challenges faced by respondents in expanding capacities include the current geopolitical situation (tariffs, trade restrictions, demand uncertainty) and operational issues (labour availability, raw material shortages, increasing logistics costs, regulatory challenges). Despite the moderated sentiment, the manufacturing sector continues to show resilience in export performance and capacity utilisation, indicating adaptability to current geopolitical challenges. The improvement in export performance is attributed to ongoing export diversification efforts by both the government and industry, helping cushion the impact of geopolitical uncertainties on the sector. The investment outlook for the next six months remained steady, even as companies cited geopolitical developments, including tariffs, trade restrictions and demand uncertainty, along with labour availability, raw material shortages, higher logistics costs and regulatory challenges as key impediments to capacity expansion.
